A Company Has Two Different Products That Are Sold in Different

question 123

Multiple Choice

A company has two different products that are sold in different markets.Financial data are as follows: $$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,500 & \$ 24,500 \\\hline \text { Variable cost } & ( 8,000 ) & ( 9,700 ) & ( 17,700 ) \\\hline \text { Fixed cost (allocated) } & \underline { ( 2,000 ) } & \underline { ( 2,000 ) } & \underline { ( 4,000 ) } \\\hline \text { Operating income (loss) } & \$ 5,000 & \$ ( 2,200 ) & \$ 2,800 \\\hline\end{array}$$ Assume that fixed costs of $4,000 could be eliminated if Product B was dropped.Assume furthermore that dropping one product would not impact sales of the other.If Product B is dropped,what would be the impact on total operating income of the company?

• A)increases by $4,000
• B)increases by $4,200
• C)increases by $200
• D)increases by $2,000

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Definitions:

Foreign Currency

Money or currency of a country other than one's own, used for international trade or investment.

Extraordinary Item

Unusual and infrequent gains or losses that are distinct from the regular operations of a company, reported separately in financial statements.

Income Statement

A financial statement that reports a company's revenues, expenses, and net income over a specific period, showing profitability.

Special Item

Unusual or infrequent gains or losses not classified as extraordinary but significantly important to understand a company's financial health.